SHANGHAI (Reuters) – After a continued sell off, China's yuan and stock markets rebounded somewhat on Friday, but investors struggled with some of their worst losses in years, when a fierce trade chain between China and the US threatened to be the world's second largest economy ,
The Yuan CNY = CFXS was set for its biggest monthly decline in record time. Chinese stocks, which have been down since the end of January, had their biggest gain in nearly two years, but still their worst monthly decline since January 2016.
Increasing losses showed investors' concerns as Washington and Beijing showed no signs to withdraw from their collective bargaining conflicts.
The concern is that an extended sell-off of the stock and the yuan could trigger a spike in capital outflows, further burdening the economy and hampering policymakers as the authorities defend the United States trade battle.
The yuan lost about 3.3 percent of its value against the dollar in June. This is the biggest drop since the market price was unified in 1994. It has been close to 6% since its peak at the end of March.
On Friday, the yuan fell to its lowest level since mid-November 2017, but rebounded to 6.6246 per dollar at official domestic close, roughly unchanged from the previous late-night closing price.
Offshore, where the yuan trades more freely, the unit CNH = D3 was about 0.02 percent weaker than the onshore position, at 6.6260 per dollar.
In equities, the CSI300 Index .CSI300 jumped 2.57 percent, while the Shanghai Composite Index .SSEC gained 2.2 percent, although both fell about 8 percent m / m. In Hong Kong, the benchmark Hang Seng Index .HSI was 1.61 percent.
For an interactive graph comparing Chinese exchanges and yuan exchange rates with other markets around the world, click: tmsnrt.rs/2Kff2Sx
U.S. President Donald Trump has shaken the world trade order by trying to renegotiate the terms of some of the US trade relations, particularly with China.
The United States is targeting $ 34 billion worth of Chinese goods worth 6 July, and threatening another $ 10 billion for similar goods Duties.
Chinese 10-year treasury futures for September delivery CFTU8, the most-traded contract, rose 0.34 percent. A fixed income portfolio manager said the sharp rise was the result of central bank pledges of "ample" liquidity.
"The central bank is expected to step up its efforts to calm investors and slow the devaluation of the yuan, leading to risk aversion in regional markets, including a possible reintroduction of the anti-cyclical factor," said Gao Qi , FX strategist at Scotiabank in Singapore, wrote in a note on Friday.
He expected "strong resistance" at 6.70 yuan per dollar.
Linus Yip, chief strategist at First Shanghai Securities, said the recovery in China and Hong Kong stocks was "technical" and the devaluation of the yuan detracted sentiment.
"Currency is at the core of the fundamental asset class, and a weakening currency is a symptom of waning confidence and risk appetite."
Some investors saw a report on the meeting of the Central Bank's monetary policy committee, released Thursday night An amendment to the text as a sign of China's monetary policy stance may have changed.
Authorities had vowed to keep the exchange rate "essentially stable at a reasonable and balanced level", but that line disappeared from Thursday's statement.
Deng Haiqing, visiting scholar at Renmin University, said the change in wording indicates that the monetary policy stance has "changed rather than finely tuned."
Political leaders were undoubtedly wary of signs of a repeat of the stock market boom in 2015, exacerbated by botched rescue attempts.
Sectors and stocks exposed to the depreciating Yuan were hit hard this month.
Real estate .CSI300REI was more than 4 percent and had its fifth consecutive loss. The transport sector index .CSI300TRANS, whose components include many leading airlines, has fallen this month by 9 percent, the strongest monthly decline since January 2016.
The flagship Air China ( 601111.SS ) has plummeted too 20 percent this month, the fourth consecutive month of losses.
Traders said the People's Bank of China (PBOC) had set the daily average higher than the models forecasted in recent days, pointing this out as an attempt to warn the market about a one-way bet on depreciation.
A regional bank dealer in Shanghai who did not want to be nominated said that the central fix set by the central bank each morning was "filtered" to keep the yuan from falling.
"It's too early to say if the anti-cyclic factor has been revived," the trader said.
In May 2017, the PBOC added a secret "anti-cyclical factor" to its formula for calculating the mean, which helped lower a floor below a falling yuan. At the beginning of this year, the X-factor was effectively reduced as the yuan recovered.
The yuan has held up against other emerging market currencies in the region as well as a currency basket with which the authorities measure its value.
For print on Chinese yuan under pressure as trade series threatens US market instability, click reut.rs/2NaorZh
For graphic on China's major stock markets, global matches outperform the bottom, while trading hards surpass knock reut.rs/2Kz49qA [19659035ReportingbyJohnRuwitchWinniZhouSamuelShenAndrewGalbraithandLiuLuoyan;CultivationofShriNavaratnam